2012 CAS RATEMAKING SEMINAR

BASIC RATEMAKING WORKSHOP

DETERMINATION OF AN OVERALL INDICATION
INTERACTIVE EXERCISES

DATA CATAGORIZATION
POLICY PREMIUM INFORMATION
Policy Effective Date
Policy Term
Policy Premium

CALENDAR YEAR
2011 Written Premium
2011 Earned Premium
2011 Incurred Loss @ 12/31/2011
2011 Incurred Loss @ 12/31/2012
2012 Incurred Loss

POLICY YEAR
2011 Written Premium
2011 Earned Premium
2011 Incurred Loss @ 12/31/2011

2011 Incurred Loss @ 12/31/2012

2012 Incurred Loss

ACCIDENT YEAR
2011 Written Premium
2011 Earned Premium
2011 Incurred Loss @ 12/31/2011

2011 Incurred Loss @ 12/31/2012

2012 Incurred Loss

7/1/2011
Annual
$1,000

POLICY LOSS ACTIVITY

Accident Date
Reserve Amount (est. on date of accident)
Date of Payment
Amount of Payment

12/15/2011
$5,000
2/15/2012
$3,000

DATA CATAGORIZATION
POLICY PREMIUM INFORMATION
Policy Effective Date
Policy Term
Policy Premium

7/1/2011
Annual
$1,000

POLICY LOSS ACTIVITY

Accident Date
Reserve Amount (est. on date of accident)
Date of Payment
Amount of Payment

12/15/2011
$5,000
2/15/2012
$3,000

CALENDAR YEAR
2011 Written Premium

$1,000

2011 Earned Premium

$500

2011 Incurred Loss @ 12/31/2011

$5,000

2011 Incurred Loss @ 12/31/2012

$5,000

2012 Incurred Loss

-$2,000

1/2 of Coverage in-force in 2011

2011 Payments + 2011 Changes in Reserves:
0 + (+5,000)
Fixed at 2011 Year End
2012 Payments + 2012 Changes in Reserves:
3,000 + (-5,000)

POLICY YEAR
2011 Written Premium

$1,000

2011 Earned Premium

$1,000

2011 Incurred Loss @ 12/31/2011

$5,000

2011 Incurred Loss @ 12/31/2012

$3,000

2012 Incurred Loss

Payments on Policies Effective in 2011 + Changes in

Reserves for Policies Effective in 2011:
0 + (+5,000)
Payments on Policies Effective in 2011 + Changes in
Reserves for Policies Effective in 2011:
3,000 + (5,000 - 5,000)
Will Never Be Any

ACCIDENT YEAR
2011 Written Premium

$1,000

2011 Earned Premium

$500

2011 Incurred Loss @ 12/31/2011

$5,000

2011 Incurred Loss @ 12/31/2012

$3,000

2012 Incurred Loss

**Same as CY
Payments on Accidents Occurring in 2011 + Changes in
Reserves for Accidents Occurring in 2011:
0 + (+5,000)
Payments on Accidents Occurring in 2011 + Changes in
Reserves for Accidents Occurring in 2011:
3,000 + (5,000 - 5,000)
None, Since No Accidents for this Policy occurred in 2012

INSURANCE COMPANY
Private Passenger Auto
STATE X
Determination of Statewide Rate Level Indication - Loss Ratio Method
Comprehensive
1 Indicated Loss and Loss Adjustment Expense Ratio

57.5%

2 Indicated Provision for Fixed Expense

20.0%

3 Variable Permissible Loss Ratio

77.2%

4 Indicated Rate Level Change {[ (1)+(2) }/(3)} - 1.0

0.4 %

INSURANCE COMPANY
Private Passenger Auto
STATE X
COMPREHENSIVE
Development of Loss and LAE Ratio
(1)

Fiscal Year Ending

12/31/2010
12/31/2011

(3)
Accident Year NonCat Ult. Loss +
ALAE
$9,177,124
$8,750,683

(4)

(5) = (3)*(1+(4))

(6)

(7) = (5)*(1+(6))

(8)

(9) = (7)*(8)

(11)

Catastrophe Factor
0.158
0.158

Accident Year Ult.

Loss + ALAE
$10,627,109
$10,133,290

ULAE Provision
0.150
0.150

Ultimate Loss and

LAE
$12,221,176
$11,653,284

Trend Factor
1.102
1.092

Projected Ult. Loss

+ LAE
$13,468,671
$12,730,780

Projected Earned
Premium @ CRL
$23,716,490
$21,997,818

Loss and LAE Ratio

56.8%
57.9%

Indicated Loss and LAE Ratio

57.5%

Development of Provision for Fixed Expense

(1)

(2)

(3)

(4) = (1)+(2)+(3)

(7)

(8) = (6)*(7)

License + Fees
0.1%

Other Acquisition
4.9%

General
5.4%

Fixed Expense Ratio

10.4%

Trend Factor
1.087

Projected Fixed Expense Ratio

20.0%

20.0%

$0

Development of Projected Average Earned Premium @ CRL

(1)

(3)

(4)

(5) = (3)*(4)

(6) = (5)/(2)

Fiscal Year Ending

12/31/2010
12/31/2011

Earned Premium at
CRL
$19,565,248
$19,252,582

Trend Factor
1.101
1.069

Projected Earned
Premium @ CRL
$21,541,100
$20,579,475

Projected Average Earned Premium @ CRL

$23,716,490
$21,997,818

(1)

(2)

Variable Permissible Loss Ratio

Commissions
15.0%

Taxes
2.8%

(3)

(4) = (1)+(2)+(3)

(5) = 1 - (4)

UW Profit
5.0%

Variable Expense
Ratio
22.8%

Variable PLR
77.2%

$21,997,818

Experience Year
Weights
35%
65%

INSURANCE COMPANY
Private Passenger Auto
STATE X
Calculation of Loss Development Factors
Comprehensive
Incurred Loss
Fiscal Accident
Year Ending
12/31/2006
12/31/2007
12/31/2008
12/31/2009
12/31/2010
12/31/2011

Development
4th Prior
3rd Prior
2nd Prior
1st Prior
Latest

@12 Months
7,478,144
7,976,481
8,053,403
9,697,478
9,102,321
8,687,507

@24 Months
7,523,188
8,034,730
8,112,672
9,737,963
9,169,647

12-24

Link Ratios
24-36

12-ULT

24-ULT

Incurred
Loss &ALAE
9,169,647
8,687,507

Factor
to Ultimate

@36 Months
7,528,572
8,043,895
8,124,400
9,739,417

36-48

Straight Average

Loss Development Factor:

Fiscal Accident
Year Ending
12/31/2010
12/31/2011

Ultimate
Loss & ALAE

@48 Months
7,527,823
8,043,111
8,120,534

48-60

@60 Months
7,527,583
8,046,213

INSURANCE COMPANY
Private Passenger Auto
STATE X
Calculation of Loss Development Factors
Comprehensive
Incurred Loss
Fiscal Accident
Year Ending
12/31/2006
12/31/2007
12/31/2008
12/31/2009
12/31/2010
12/31/2011

@12 Months
7,478,144
7,976,481
8,053,403
9,697,478
9,102,321
8,687,507

@24 Months
7,523,188
8,034,730
8,112,672
9,737,963
9,169,647

@36 Months
7,528,572
8,043,895
8,124,400
9,739,417

@48 Months
7,527,823
8,043,111
8,120,534

Link Ratios
24-36
1.001
1.001
1.001
1.000

36-48
1.000
1.000
1.000

48-60
1.000
1.000

1.006

1.001

1.000

1.000

Loss Development Factor:

12-ULT
1.007

24-ULT
1.001

Fiscal Accident
Year Ending
12/31/2010
12/31/2011

Incurred
Loss &ALAE
9,169,647
8,687,507

Factor
to Ultimate
1.001
1.007

Development
4th Prior
3rd Prior
2nd Prior
1st Prior
Latest

12-24
1.006
1.007
1.007
1.004
1.007

Straight Average

Ultimate
Loss & ALAE
9,177,124
8,750,683

@60 Months
7,527,583
8,046,213

INSURANCE COMPANY
Private Passenger Auto
STATE X
Calculation of Earned Premium @ CRL
Rate History
Date
9/15/2010
7/1/2011

%Change
5.0%
7.0%

A
B
C

Area
A
B
C
2011

2010

2011

% of 2011

Rate Index

2011 FCRL

2011 Earned Premium

2011 Earned Premium @ CRL

Area
A
B
2010

% of 2010

2010 Earned Premium

2010 Earned Premium @ CRL

$17,935,560

Rate Index
2010 FCRL

84.15
$16,272,086

INSURANCE COMPANY
Private Passenger Auto
STATE X
Calculation of Earned Premium @ CRL
Rate History
Date
9/15/2010
7/1/2011

%Change
5.0%
7.0%

A
B
C

Area
A
C
B
2011

2010

2011

% of 2011
25.1%
12.5%
62.4%
100.0%

Rate Index
1.000
1.124
1.050
1.047

2011 Earned Premium

2011 Earned Premium @ CRL

Area
A
B
2010

% of 2010
95.7%
4.3%
100.0%

2010 Earned Premium

2010 Earned Premium @ CRL

2011 FCRL
1.073

$17,935,560
$19,252,582

Rate Index
1.000
1.050
1.002
90.24971367
$17,451,587
$19,565,248

2010 FCRL
1.121

INSURANCE COMPANY
Private Passenger Auto
STATE X
Calculation of Trend Factors

Annual Policy Term

From
10/1/2012
10/1/2012

Rates In Effect for Policies Written

Exposure Period

To
9/30/2013
9/30/2014

Projection Date
Loss Trend Factor Calculation
2010

2011

Frequency
-3.0%
0.0%

Severity
4.0%
4.0%

2010

2011

Midpoint of Experience Period

Midpoint of Most Recent Year Experince Period
Projection Date
Trend Period
Projection Period

Selected Historical Annual Trend

Selected Prospective Annual Trend

Loss Trend Factor

Fixed Expense Trend Factor Calculation

Experience Period

From
1/1/2009

To
12/31/2011

Midpoint of Experience Period

Projection Date
Trend Period
Selected Historical Annual Trend
Fixed Expense Trend Factor

2.6%

Premium Trend Factor Calculation

2010

2011

3.0%

3.0%

Midpoint of Experience Period

Projection Date
Trend Period
Selected Historical Annual Trend
Fixed Expense Trend Factor

Pure Premium
0.9%
4.0%

INSURANCE COMPANY
Private Passenger Auto
STATE X
Calculation of Trend Factors

Annual Policy Term

Rates In Effect for Policies Written
Exposure Period

From
10/1/2012
10/1/2012

Projection Date

10/1/2013

To
9/30/2013
9/30/2014

Loss Trend Factor Calculation

Midpoint of Experience Period

Midpoint of Most Recent Year Experince Period
Projection Date
Trend Period
Projection Period

2010
7/1/2010
7/1/2011
10/1/2013
1.00
2.25

2011
7/1/2011
7/1/2011
10/1/2013
0.00
2.25

Selected Historical Annual Trend

Selected Prospective Annual Trend

Frequency
-3.0%
0.0%

Severity
4.0%
4.0%

2010
1.1021

2011
1.0925

Loss Trend Factor

Fixed Expense Trend Factor Calculation

Experience Period

From
1/1/2009

Midpoint of Experience Period

Projection Date
Trend Period

7/1/2010
10/1/2013
3.25

Selected Historical Annual Trend

Fixed Expense Trend Factor

To
12/31/2011

2.6%
1.087

Premium Trend Factor Calculation

Midpoint of Experience Period

Projection Date
Trend Period
Selected Historical Annual Trend
Fixed Expense Trend Factor

2010
7/1/2010
10/1/2013
3.25

2011
7/1/2011
10/1/2013
2.25

3.0%
1.101

3.0%
1.069

Pure Premium
0.9%
4.0%

INSURANCE COMPANY
Private Passenger Auto
STATE X
Determination of Statewide Rate Level Indication - Pure Premium Method
Comprehensive
1 Indicated Provision for Loss and Loss Adjustment Expense

$66

2 Indicated Provision for Fixed Expense

$14

3 Variable Permissible Loss Ratio

77.2%

4 Indicated Average Premium [ (1) + (2) ] / [ (3) ]

$104

5 Projected Average Earned Premium at Current Rate Level

$103

6 Indicated Rate Level Change [ (4) / (5) - 1.0 ]

0.4 %

INSURANCE COMPANY
Private Passenger Auto
STATE X
COMPREHENSIVE
Development of Provision for Loss and LAE
(1)

(2)

Fiscal Year Ending

12/31/2010
12/31/2011

Earned Exposure
193,370
199,284

(3)
Accident Year NonCat Ult. Loss +
ALAE
$9,177,124
$8,750,683

(4)

(5) = (3)*(1+(4))

(6)

(7) = (5)*(1+(6))

(8)

(9) = (7)*(8)

(10) = (9)/(2)

(11)

Catastrophe Factor
0.158
0.158

Accident Year Ult.

Loss + ALAE
$10,627,109
$10,133,290

ULAE Provision
0.150
0.150

Ultimate Loss and

LAE
$12,221,176
$11,653,284

Trend Factor
1.102
1.092

Projected Ult. Loss

+ LAE
$13,468,671
$12,730,780

Projected Pure
Premium
$70
$64

Experience Year
Weights
35%
65%

Indicated Provision for Loss and LAE

$66

Development of Provision for Fixed Expense

(1)

(2)

(3)

(4) = (1)+(2)+(3)

(5)

(6) = (4)*(5)

(7)

(8) = (6)*(7)

License + Fees
0.1%

Other Acquisition
4.9%

General
5.4%

Fixed Expense
Ratio
10.4%

3Yr Average
Earned Premium
$125.37

Dollar Provision for

Fixed Expense
$13.04

Trend Factor
1.087

Indicated Provision for Fixed Expense

$14

Development of Projected Average Earned Premium @ CRL

(1)

Fiscal Year Ending

12/31/2011

(2)

(3)

Earned Exposure
199,284

Earned Premium at
CRL
$19,252,582

(4)

(5) = (3)*(4)

(6) = (5)/(2)

Trend Factor
1.069

Projected Earned
Premium @ CRL
$20,579,475

Projected Average Earned Premium @ CRL

$103

Variable Permissible Loss Ratio

(1)

(2)

(3)

(4) = (1)+(2)+(3)

(5) = 1 - (4)

Commissions
15.0%

Taxes
2.8%

UW Profit
5.0%

Variable Expense
Ratio
22.8%

Variable PLR
77.2%

$103

$14